Definition:
Short-Term Investments are financial assets that are expected to be converted into cash or sold within a year. These investments are typically highly liquid and can include marketable securities, treasury bills, and other instruments that can be easily converted into cash.
Examples
Examples of Short-Term Investments include treasury bills, certificates of deposit (CDs) with a maturity of less than one year, commercial paper, and money market funds.
Formula:
There is no specific formula for Short-Term Investments as they are a category of assets rather than a calculated metric.
How to use the metric:
Short-Term Investments are used to assess a company's liquidity and its ability to meet short-term obligations. They are often analyzed as part of a company's current assets on the balance sheet to evaluate financial health and operational efficiency.
Limitations:
The primary limitation of Short-Term Investments is that they typically offer lower returns compared to long-term investments. Additionally, the value of these investments can be affected by market volatility, interest rate changes, and economic conditions.
Applies to:
Short-Term Investments are applicable across various industries, particularly those that require maintaining high liquidity, such as financial services, retail, and manufacturing.
Doesn't apply to:
Industries that are capital-intensive and focus on long-term growth, such as real estate development and heavy manufacturing, may not prioritize short term investments as much because their capital is often tied up in long-term projects.
Summary:
Short-Term Investments are liquid financial assets intended to be converted into cash within a year. They are crucial for assessing a company's liquidity and financial health but generally offer lower returns. While applicable across many industries, they are less emphasized in capital-intensive sectors focused on long-term growth.
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Financial data by
Financial data provided by FactSet is standardized for consistency across companies, industries, and countries. Results may differ from original reports due to adjustments based on global accounting standards and methodologies.